Governments Looking for Bigger Piece of Mining Pie


Higher prices for metals are prompting governments in some minerals-rich countries to tap the mining industry for increased government revenue. Following are brief reports on such actions in Bolivia, Zambia, Tanzania, and South Africa. In Bolivia, on Feb. 9, President Evo Morales nationalized the Vinto tin smelter owned by Glencore International. Glencore subsequently said it would seek indemnification for its loss, and the government responded that it would pay no indemnification unless Glencore could demonstrate that it had invested in improvements at the smelter. Glencore purchased the smelter in 2004 from a company owned by former Bolivian President Gonzalo Sánchez de Lozada for $100 million. Glencore also owns the Colquiri tin mine and the Porco lead, silver, and zinc mine in Bolivia. Morales also said he will increase taxes on all internationally owned mines operating in Bolivia. However, indications from the government were that the Vinto nationalization was a special case and did not signal an intention to nationalize other mining operations or development projects. In mid-February, the Bolivian government gave Indian company Jindal Steel until the end of the month to finalize a contract to exploit the Mutún iron ore deposits in eastern Bolivia. The government awarded Jindal the right to develop the deposits in June 2006. However, Jindal is now reported to be unwilling to accept government conditions as to taxes and the price it would have to pay for natural gas. The government said it was in talks with other companies interested in developing the deposits.

In Zambia, on Feb. 9, Finance Minister Ng’andu Magande in his presentation of the government’s 2007 budget to parliament said the government will raise the royalty tax on gross revenues of copper producers from 0.6% to 3% and on precious metals producers from 2% to 3%. Corporate taxes on earnings of mining companies will increase from 25% to 30%, and a withholding tax of 15% will be imposed on dividends, interest, royalties, management fees, and payments to affiliates and subcontractors in the mining sector. The 0.6% royalty on copper has been in place since Zambia privatized its mines in 1997 and was designed to encourage investment in the industry at a time when copper prices were low. It is specifically written into the development agreements of some projects developed since that time. Magande said the government would negotiate with companies that have such development agreements but that it expects them to agree to the increased royalty. He also said future development agreements will not include specific taxation clauses that are independent of prevailing tax law and that Zambia wants to remain an attractive investment destination while ensuring that a reasonable share of mineral revenue accrues to the Zambian people.

In Tanzania, the government has negotiated new tax regimes with Barrick Gold and Resolute Mining, two of the country’s major gold producers, and is negotiating with other mine operators in the country for similar changes. The government goal in each case is to shorten tax holidays previously granted and bring forward the time when gold producers begin to pay corporate taxes of 30% and a royalty of 3%. How much earlier such payments will begin will in part be a function of anticipated mine life. Under previous policy, some taxes could be deferred for up to 20 years.

In South Africa, discussions regarding royalties on minerals production have been on-going since 2003. A revised draft royalty bill was released for comment in October 2006, and on Feb. 15, 2007, the Chamber of Mines of South Africa, representing the nation’s mining companies, published three pages of comments on the revised bill on its website. The industry welcomed changes in the revised draft that reduced proposed royalties, the Chamber said, however, it remains convinced that a regime of taxes on net earnings is much to be preferred to a gross royalties scheme. The Chamber also objected to a proposed two-tier scheme that imposes higher royalties on non-beneficiated minerals products than on beneficiated products, saying, “The mining industry fully supports the government’s objective of promoting greater manufacturing beneficiation in South Africa. However, the meritorious objective of trying to encourage more local beneficiation via a dual royalty system which charges penalty royalty rates on non-beneficiated minerals may undermine the viability of certain sections of the mining industry with very limited downstream benefit.” Also, “The Bill appears to be internally inconsistent when a higher 3% royalty rate is applied to beneficiated export coal versus the 1% rate for high ash coals sold locally for power generation.
The higher royalty on export coals will directly affect the emerging BEE mines that will rely on exports for growth, given smaller growth in the domestic market. The Chamber recommends that the proposed higher 3% royalty rate be discarded for low ash coals.” The Chamber also suggested that government revenues from minerals royalties be specifically allocated to industry-related purposes, such as infrastructure development in mining communities and areas that are traditional sources of labor for the industry.